CBA boss warns of financial strain for households, shares slump on $5b profit

By Millie Muroi
Updated

Commonwealth Bank boss Matt Comyn says the economy has been stronger than anticipated but warns households and businesses will continue to face financial strain this year, as the bank posted a slight decline in profits.

On Wednesday, CBA announced a cash profit of $5 billion for the half-year to December, falling just short of analyst expectations, with chief executive Matt Comyn warning downside risks were building as slowing demand and persistent inflation impact Australian businesses.

CBA boss Matt Comyn said households faced a “challenging year” ahead.
CBA boss Matt Comyn said households faced a “challenging year” ahead.Credit: Peter Rae

“2023 was increasingly challenging for many of our customers who are finding it harder to absorb cost of living pressures,” he said.

Shares in CBA dropped 3.8 per cent in early trade on Wednesday after closing at an all-time high of $116 a share on Tuesday.

However, Comyn said the economy had been stronger than the bank anticipated, and that while higher rates and inflation were clearly being felt by customers, it hadn’t flown through as clearly in terms of their ability to meet loan repayments.

“The level of arrears in the case of our retail business is up very slightly, but it’s still well below where we were pre-COVID,” he said.

“The economy has been fairly resilient, supported by a strong labour market, savings and repayment buffers, population growth and relatively high commodity prices. We think there will be ongoing pressure, and in some sectors clearly more than others, but we remain optimistic that there’ll be a soft landing.”

CBA’s loan impairments decreased $96 million over the half. However, the bank is bracing for conditions to potentially worsen, with loan impairment provisions – money set aside for possible loan impairments – increasing by $113 million from the prior half amid ongoing cost of living pressures.

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Comyn said he expected financial strain to continue in 2024, including an increase in arrears, as pressures continue to build on household disposable incomes, noting cash rate increases had a lagged impact on customers.

“We recognise that it’s going to be a challenging year for many of our customers,” he said.

CBA announced an interim dividend of $2.15 a share, fully franked, 2 per cent higher than the previous half.
CBA announced an interim dividend of $2.15 a share, fully franked, 2 per cent higher than the previous half.Credit: Attila Csaszar

CBA’s profit result was just shy of its record $5.15 billion half-year profit this time last year, when it was facing stiff competition in mortgages. The bank announced an interim dividend of $2.15 a share, fully franked, 2 per cent higher than the previous half.

Consensus among analysts was for CBA to clock in a $5.1 billion cash net profit. Comyn said on Wednesday the lower cash profit reflected the effects of high inflation and a competitive operating environment. CBA’s expenses increased 4 per cent and staff expenses grew 5 per cent.

The bank’s net profit margin – a measure of profitability comparing banks’ funding costs with what they charge for loans – fell 6 basis points from the prior half to 1.99 per cent as a result of increased competition, customers switching to higher yielding deposits and higher funding costs.

‘We recognise that it’s going to be a challenging year for many of our customers.’

CBA chief Matt Comyn

While CBA pulled back from the mortgage wars and lost market share for three months last year, the bank picked up its pace in following months, with Comyn on Wednesday flagging volume growth in home and business lending.

“At points last year, we felt it was unsustainably [competitive] in a couple of areas,” he said. “That has eased slightly, but’s still very competitive.

Comyn said the bank would be “very thoughtful” about risks and pricing, but that “if there are opportunities to continue to grow, which I’m sure there will be, then we will look to take those up.”

He also CBA would look at contributing more capital to the development of social and affordable housing amid strong population and migration growth.

“Clearly, the Commonwealth Bank is a beneficiary of higher economic growth and higher standards of living,” Comyn said.

“Housing is an important economic and social issue. And so wherever we can, it should be a real objective which needs to try to support that as best we can.”

UBS head of Australian bank research John Storey said CBA did not live up to expectations but that the bank was well-placed if the mortgage market rationalised, having endured “extreme” levels of pricing pressure in mortgages and deposits.

E&P Capital analyst Azib Khan said the result showed CBA’s discipline on margin and volume management, with loan pricing only contributing to a 2 basis point drag on the bank’s net interest margin.

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